Business and Farm Owners: Maximise Your Inheritance Tax Savings Before It’s Too Late

The Clock is Ticking: A ‘not to be missed’ Opportunity for Business Owners & Farmers or those that have recently sold their businesses to Maximise Inheritance Tax Relief.

A major change to Inheritance Tax is coming in April 2026. For owners of trading businesses and farmers, the time to act is now!

For many years, trading businesses and farms have benefited from a powerful relief that allows them to be passed to the next generation free of Inheritance Tax (IHT). This has been a vital support for family enterprises across the country. However, following the Autumn Budget in 2024, this is about to change dramatically.

The Problem: A New Tax Bill for Family Businesses & Farms

From 6 April 2026, the 100% Inheritance Tax relief that business owners and farmers have relied on will be capped at the first £1 million of the business’s value. Any value above this £1 million cap will effectively be taxed at 20%.

To put that in perspective, consider a family business valued at £5 million.

• Today: Passing this business on death would result in a £0 IHT bill.
• After April 2026: The same business would face an IHT bill of £800,000.

This is a seismic shift that could force many families to sell assets or even the business itself simply to pay the taxman.

A Limited Window of Opportunity

The good news is that there is a strategic window of opportunity between now and April 2026 to protect your business from the full force of these new rules. By acting decisively, it is possible to structure your affairs to secure a more favourable long-term outcome.

One of the most effective strategies available during this limited period involves placing your business into a series of carefully structured family trusts.

How it Works: Protecting Your Legacy with Trusts

A trust is a legal arrangement that allows you to pass assets to your chosen beneficiaries (such as your children or grandchildren) in a controlled and protected way.

The strategy involves settling your business shares into a number of smaller trusts before the April 2026 deadline. By structuring the plan in a specific way, ongoing Inheritance Tax charges which can arise every 10 years can be mitigated.

This effectively ‘grandfathers’ the assets under a more favourable regime, preserving the value of your business for future generations without the burden of these recurring taxes.

Because the transfer happens while the current, more generous Business / Agricultural Relief rules are still in force, it can be done without triggering an immediate IHT bill regardless of the value of Business / Agricultural Relievable assets being transferred, something that will change come April 2026.

And what’s even better, if that by utilising a trust for this purpose, you can retain full control of these assets, assuming you are appointed trustee.

Managing the Risk: The 7-Year Rule

This type of planning is powerful, but it comes with one important condition: you, the business owner, must survive for seven years after setting up the trusts for the plan to be fully effective. If you were to pass away within this seven-year period, a significant Inheritance Tax bill could fall due albeit the ongoing benefits from a periodic charge perspective will remain.

Fortunately, this risk can be completely and cost-effectively neutralised. As part of the planning, a specialised 7-year life insurance policy is taken out. This policy is designed to pay out a sum that exactly matches any potential tax bill, ensuring your family is fully protected. This insurance is an essential part of the plan, providing complete peace of mind. To ensure the payout itself isn’t subject to IHT, the policy must be written into a trust.

Is This Right for You?

This advanced strategy is most suitable for business owners who:

• Have a trading business or Business Relievable investments valued significantly in excess of £1 million.
• Have a clear plan for succession and wish to pass the business to the next generation.
• Are prepared to make an irreversible gift of the business shares for the benefit of their family without a loss of control!
• Are willing and able to act before the 6 April 2026 deadline.

Your Next Step

The new Inheritance Tax rules for businesses are complex, and the window to act is closing. If you are concerned about how these changes will affect your family and your business legacy, it is vital to seek urgent professional advice. A specialist adviser can help you understand your exposure and explore whether this time-sensitive strategy is the right choice to protect the business you have worked so hard to build.

For more information on how, please do get in touch with us at privateclient@ctt-group.co.uk.